News Analysis: As Microsoft announces its retreat from the Mac virtualization arena, the fight contines with a lean startup in one corner and a heavyweight brand in the other. But questions remain on why Microsoft threw in the towel for Virtual PC

While Mac OS X Leopard was the focus of Apple's Worldwide Developers Conference early in August, the event served as the backdrop for major moves in the platform's virtualization market. For a moment, three vendors were standing, but as the cheers of the Mac faithful at the keynote address faded, one took a dive.

For ages the lone developer of Mac virtualization software, Microsoft unexpectedly announced that it would stop developing Virtual PC for Mac. This move coincided with VMware's entry into the Mac market and startup Parallel Software International's defense of its turf with an announcement of a major upgrade.

Virtualization giant VMware announced that by the end of the year, it would jump into the ring with a beta that would be able to run Windows Vista.

Parallels, a small company based in Herndon, Va., and less than a year old, announced that it would beat VMware to the punch and ship a Vista-ready, final release version of Parallels Desktop before VMware delivered its beta.

At WWDC, however VMware had the goods, previewing pre-beta VMware code running Windows Vista Beta and AutoCAD on a Mac Book Pro. The company said that the Linux and Windows versions of VMware formed the core of the Mac version.

The vendors both promised a capability that has been mostly missing with the older Virtual PC for Mac: full support for USB 2.0, a standard feature of Macs. VMware and Parallels promised support in future releases. However, VMware showed off Windows XP running a Web cam, something that has been nearly impossible in Virtual PC, which has always had spotty USB support.

"We test hundreds of USB devices. We have the framework in place to support these devices," Krishnamurti said.